Business

John Torinus | Business Commentary

Senate shows little love for Wisconsin business

With the elimination of the capital-gains tax exemption in the Senate version of the state budget, the disconnect between the political leaders and business leaders in Wisconsin is just about complete.

The 60% exemption from state income tax for capital gains was one of the few tax advantages of doing business in Wisconsin. Gov. Jim Doyle, desperate for more tax revenue to fill a huge state deficit, took the exemption down to 40% in his budget. The Senate version eliminates it completely.

The proceeds for the state Treasury under the Senate's plan would be about $230 million a year.

Relations between state business organizations and Democratic leaders were already on shaky ground before the Senate move to forgo a tax on oil companies and erase the capital-gains tax break.

Sen. Russ Decker, majority leader and unionist, obviously doesn't care much what business interests think. After 23 years out of power, his brand of Democrat must see this legislative session as the union movement's turn to get what it wants.

His anti-business agenda comes at a time when job losses in the state are horrendous. The loss of 133,800 jobs in the last year is the biggest in percentage terms in a half-century.

Doyle's outreach fizzled

The Doyle administration got off to a good start with the business community early in his first term. Recognizing that the formula for the corporate income tax penalized job creation in the state, the governor put through a change to base the tax on sales. He cleaned up the permitting backlog at the Department of Natural Resources.

He also created a Growth Council that included business leaders around the state. But it was abruptly discontinued after a couple of meetings. Similarly, a recent creation, the Governor's Business Council, which was drawn from regional economic development groups, reportedly has seldom met.

Through most of the past three decades, there has been political consensus that job creation was a major objective of both parties. At least there was unity on that score.

Remnants of that common theme have shown up in collaborative attempts to use political influence to keep automotive plants open in Kenosha and Janesville. But beyond such late-inning heroics, there is little agreement on how to keep the economy healthy.

There is some agreement that entrepreneurship is the way of the future for the state's economy. Decker and his counterpart in the Assembly, Mike Sheridan, also a union leader, allowed an expansion in the budget of credits for angel and venture investing.

That positive note in the budget was offset, however, by the elimination of the capital gains exemption and raise in the personal income tax from 6.75% to 7.75% for the highest-income people in the state. They may be viewed as fat cats by the Democrats, but they are also the ones most likely to invest in new ventures.

Not surprisingly, it has become a pattern for business owners and executives who retire from Wisconsin companies to move out of state. Their accountants and lawyers uniformly recommend an exodus for at least six months and a day to escape Wisconsin taxes. Some loyalists stay put, but their friends tell them they're crazy.

Further damage to the business climate was inflicted when the Democrats instituted combined reporting to end what they saw as a loophole and to fix the deficit in the current budget. That alienated many of the largest employers in the state. It also affected thousands of smaller firms that do business in other states. That tax change brings $110 million a year to state coffers, but it reduces the earnings of corporations based here by the same amount. Decker pushed that "reform" through without the blessing of the governor, who said he signed it reluctantly.

Income tax impact

The higher top bracket affects more than just the top earners in the state. It also imposes a higher tax on the earnings of companies organized as S corporations or limited-liability companies. Add their owners to the list of the disgruntled.

The Democrats obviously have decided to play to union leaders and to the average voter and have turned a deaf ear to business. The reversal of their proposed increase in joint and several liabilities was an exception. The retreat was triggered by an outpouring of opposition from thousands of small businesses.

Yet, when I talk to the voters across the state, they are viscerally concerned about jobs and job security. It's hard to create tax-generating jobs without businesspeople feeling good about the state.

Right now, it's almost unanimous that businesspeople at all levels aren't feeling the love.

John Torinus is chairman of Serigraph Inc. of West Bend and a founder of BizStarts Milwaukee, a nonprofit organization dedicated to fostering entrepreneurship in southeastern Wisconsin. Contact him at torcolumn@serigraph.com.